Dollar General, based in Goodlettsville, Tenn., sells toys, food, household products and other items at its national chain of discount stores. The company reported in March fourth-quarter earnings that came in ahead of market expectations and issued a solid full-year forecast.

S&P raised its issue-level rating on the company's existing senior unsecured notes one notch to "BBB-" from "BB+" following the refinancing of its secured debt with unsecured debt. It reiterated its "BBB-" investment-grade corporate credit rating on the company. The outlook is stable.

The agency said it expects the discount retailer's sales and cash flow to improve in 2013, leading to better credit protection measures.

S&P credit analyst Ana Lai said that the dollar store chain, which is more than double the size of its next competitor, Family Dollar Stores Inc., will likely keep its strong market leadership and credit position in the near future.

The rating agency did note that while it expects Dollar General's revenue to grow, it will do so at a more moderate pace and its margin gains may be tempered by spending to pay for store expansions. S&P expects the company will use the bulk of its free cash flow to fund share repurchases, rather than debt reduction.